Spacehive in the Guardian | Head to head: is crowdfunding the way forward for councils?

George Ferguson, the Bristol mayor, thinks crowdfunding can be beneficial to local communities. Photograph: Bristol city council

Local authorities are using innovative measures to raise money. One such approach is crowdfunding, which involves inviting members of the community to donate money towards the cause. But what are the benefits and drawbacks?

Paul Taylor, head of executive office at Bristol city council, says crowdfunding makes things more democratic

We have to think differently about where finance is coming from and this is where civic crowdfunding steps in.

Bristol city council is embarking on a new project with Spacehive –a crowdfunding website for civic projects – to look at the potential to use crowdfunding as a tool for driving more innovation in the social sector in the city.

Traditionally, grant funding to community organisations is dished out in response to community groups or individuals filling in an – often complicated – application form. This is more a test of a person’s talent for bureaucracy than is it a fair assessment of whether the project will benefit the community. It is far better for the community to judge whether projects have potential by investing their own money.

So the council is going to explore how this kind of platform,and other local organisations, can help find funding for projects, making the whole process more democratic.

We partnered with Spacehive, who work with investment from Big Lottery and Deloitte, partly because of reduced risk. Projects are free to put online and pledgers are only charged if projects hit their funding targets.

Crowdfunding is a new way of doing things but it sits neatly alongside traditional funding streams.

Aside from the obvious benefits of being able to leverage funding from corporates, charities and other bodies, the simplicity of sharing ideas is paramount. All too often, local authorities try to conduct community engagement at arm’s length.

The mayor of Bristol, George Ferguson, believes that local authorities have a fantastic opportunity to think differently about their role in the 21st century. Lord Heseltine and cities minister Greg Clark were in Bristol only two weeks ago to explore ways to unlock growth in the city, including through our city deal.

Whitehall is full of thinktanks developing new ideas and lobbying the decision-makers in government. But as the mayor has said, you can come up with new ideas in central government, using thinktanks far away from the people affected by their suggested new policies, or you can come to Bristol, where instead of just thinking we act and try things out for real.

There are now so many crowdfunding platforms in the UK that Nesta recently launched a directory of crowdfunding sites, CrowdingIn, to help navigate the field.

For local government organisations, communities and individuals I’m a big fan of crowdfunding and its potential to power real social change, but there are several points to bear in mind when thinking of running their next crowdfunding campaign.

Most projects are highly local, limiting the size of the community that might get behind that idea. The most successful campaigns have generated funding around the tens-of-millions mark. This is a lot for a consumer product, but not enough for larger projects that local government is involved with, such as transport, infrastructure or educational projects. The question remains: can locally backed projects raise enough money to support larger initiatives?

There is also a basic question of who decides what is best locally. Local development projects become most valuable only when they have been subjected to considered critique, continuous exploration and questioning, and have engaged with the outcomes in an ongoing, iterative fashion. This takes the concentrated work of numerous professionals over several years, not a group of amateurs over just a few weeks.

Another concern is that crowdfunding distracts from bigger issues. As Dan Hill of City of Sound says, “Are we too distracted to notice developments that will affect us in a much larger way as we’re all too busy trying to crowdfund a park bench?”

For those crowdfunding projects that do successfully get funded, there is an extreme and supreme lack of accountability for actually making the project happen or delivering on the promised product. Platforms such as Kickstarter specify in their terms that successful projects have to deliver within a reasonable time, but this is too loose for accountability. Who decides when a project is finished and to an agreed standard?

Crowdfunding is also increasingly being used for questionable ends. A major digital media outlet recently created a crowdfunding campaign that aims to raise money to purchase a video of a Canadian mayor smoking crack. The site will then pay that money to members of Toronto’s drug trade for that video. Who will be funding the money to give to these drug dealers? Ordinary Toronto citizens. The campaign has raised over $64,000 so far, so is popular on the scale of crowdfunding platforms. What other questionable projects will crowdfunding be used for?

Both Ben Matthews and Paul Taylor will be around all day Thursday 30 May to answer further questions on crowdfunding. Join the debate by posting a comment or question.